Lam Chi Ying v. To Pik Ha

HCA 1930/2013 &
HCMP 557/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1930 OF 2013

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 557 OF 2013

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(Heard Together)

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J U D G M E N T

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Introduction

1.This is my decision on a petition and an action tried together.  Madam To Pik Ha (“Madam To”) is the petitioner in the petition presented pursuant to s. 168A of the previous Companies Ordinance (Cap. 32) and the defendant in the action.  She sues and is sued only in her capacity as the sole administratrix of the estate of her deceased husband, the late Mr Lui Wai Hang.  Madam Lam Chi Ying (“Madam Lam”), the plaintiff in the action, is the mother of Lui Wai Hang.  The 1^st, 2^nd and 3^rd respondents in the petition are three of the siblings of Lui Wai Hang.  The 4^th respondent in the petition is a company called Essence Curtain Company Limited (“Essence”).  It is the affairs of Essence which are said to have been conducted in a manner unfairly prejudicial to the interests of the late Lui Wai Hang.

2.The central disputes raised in these two sets of proceedings are two factual issues.  The first is whether Lui Wai Hang held one of two issued shares in Essence beneficially for himself or merely as one of the two administrators of his deceased father’s estate.  The second is whether he consented to an allotment of two new shares by Essence in 2012 to the 2^nd and 3^rd respondents in the petition respectively.

Factual background

3.Some of the factual background is uncontroversial but there are also certain matters in dispute, as to which I shall indicate my findings below.  The witnesses have referred in their statements to numerous matters and events in the family history, raising side issues of varying degree of relevance to the main issues.  In this sort of case the court cannot properly resolve every dispute on every matter mentioned by the parties in the evidence.  Fortunately there was a large measure of consensus between counsel as to what disputes need to be resolved for the purpose of determining the salient issues.

4.Mr Lui Hung (“Mr Lui Snr”) and Madam Lam had seven children, namely, Lui Wai Hang (born in 1954), Lui Wai Fong (born in 1955), Lui Wai Chung (born in 1957), Lui Wai Foon (born in 1960), Lui Wai Ling Rosalind (born in 1962), Lui Wai Shing (born in 1966) and Lui Wai Kuen (born in 1967).  For brevity and without any disrespect, I shall refer below to the seven siblings by their first names.

5.Since the late 1960s, Mr Lui Snr and Madam Lam had been operating a cooked food stall in Tsim Sha Tsui to make a living.

6.In around 1972, after Wai Hang completed his secondary education, at his parents’ bidding he went to his uncles (Mr Lui Snr’s brothers) to learn the skills of curtain making.  The apprenticeship lasted only a short time.  In 1972, an unincorporated curtain selling business was started as what might be loosely called a “family business”, in the name of Essence Curtain Company.  There is no dispute that it was initially funded by the parents using the income derived from their cooked food stall.  The business registration for Essence Curtain Company was made in the name of Wai Hang, although there is no suggestion that this in itself made Wai Hang the owner of that business.  It was probably registered in his name because he was the eldest of the children, was the only child who had reached majority and knew some English.

7.From the inception Wai Hang was involved in the curtain business.  Wai Fong who was one year younger was in the last year of secondary school at that time.  She went to the shop to help every day after school.  After her graduation in 1973, she worked full time in the shop and family business.  Wai Chung, who was two years younger than Wai Fong, also joined the shop soon, apparently without finishing secondary school, and had from the mid 1970s been involved in the operation of the family business.  In those early days, Wai Hang and Wai Chung would work in the cockloft making curtains, while Wai Fong would deal with customers on the shop floor.

8.The parents operated their cooked food stall until 1975 or 1976.  After a short stint of poultry farming the father also devoted his effort to the curtain business, while the mother, Madam Lam, looked after the family including her grandchildren, ie the children of Wai Hang (who were born in 1978, 1982 and 1984 respectively) and Wai Fong respectively.  The family also started a furniture business operated by a company called Decormark Limited, and opened a furniture shop in Wan Chai called Luxhome.  These businesses, which gradually expanded, had throughout at least the 1970s and 1980s provided income and financial support for the entire Lui family.

9.Wai Hang and Madam To were married in around 1977.  Madam To said that at the time she contributed $20,000 towards the opening of a new shop.  This is denied by Madam Lam and Wai Fong.  It is not necessary to make a finding on this.  There was also some debate in the trial as to whether Madam To was in charge of a shop in the business.  The truth, it seems to me, is that, as Madam Lam frankly said, after her marriage to Wai Hang, Madam To was regarded as part of the family.  She was not a mere employee, even though, like other family members, she would draw a salary from the business.  She was the one who was stationed, often on her own, in one of the curtain shops.  In that sense she was in charge of the day to day running of that particular shop.  But Madam To was not involved in the overall management of the entire business.  Nor did she claim to be involved in major business decisions or decisions about the transfer or distribution of family assets.

10.Wai Foon graduated from school in 1979.  After working for a short while in a bank, she joined the family business and had been working there ever since.

11.On 17 July 1981, the company, Essence Curtain Company Limited (“Essence”), whose shares are the subject matter of this litigation, was incorporated in Hong Kong with Mr Lui Snr and Wai Fong as the two subscribers.  Only two out of 10,000 shares were issued (which remained the position until 2012).  The company is said to have been created for the purpose of preserving the name “Essence”.  Before any step was taken to inject any business or asset into it, Mr Lui Snr unexpectedly died in an accident overseas in October 1981.  His corpse was subsequently transferred back to Hong Kong and placed at a “yee chong” (coffin repository) and had remained there until 2012.

12.Meanwhile the elder children, Wai Hang, Wai Fong and Wai Chung continued to carry on the curtain and furniture business, with help from Wai Foon and Wai Ling.  In December 1985, letters of administration of the estate of Mr Lui Snr were granted to Madam Lam and Wai Hang as joint administrators.  The assets listed in the schedule of property attached to the grant included the following: (i) 2,000 shares in Decormark Ltd valued at $217,141.68; (ii) one subscriber’s share in Essence valued at $1.00; (iii) one subscriber’s share in Luxhome Ltd valued at $1.00; (iv) household goods and personal effects valued at $200; and (v) a residential unit in Cheung Sha Wan valued at $358,000.

13.In 1986 the family business did badly and defaulted on loans borrowed from third parties.  As a result, Decormark Ltd was closed down.  Wai Hang shouldered the responsibility for the failure.  It was a big blow to him.  There is some suggestion from the respondents that thereafter he completely ceased to work in the family business but I think the truth is that, as accepted by Madam Lam, he still worked in the family business but played a lesser role.  At about this time Wai Hang also took to drink.  There was some debate in the evidence whether Wai Hang became addicted to alcohol.  To my mind there is no doubt that he drank a lot, far too much in the opinion of his siblings, which probably took a toll on his health in the later years. 

14.Also in 1986, Wai Shing, who was about 19 or 20 years old at the time, went to the USA, and Wai Kuen went to Canada, to further their studies.

15.The curtain business was never injected into Essence, which appears to have been left dormant after its incorporation between 1981 and 1987.  In fact the company never carried on any trading business, and was subsequently used only for the purpose of acquiring and holding properties.  In April 1987 it was activated, probably because it was to be used as the vehicle for acquiring a property.  Three first directors were appointed, namely, Wai Hang, Wai Fong and Wai Foon, on 15 April 1987.  On 30 April, Essence purchased a property, namely, 15 Keng Hau Road, Jade Villa, Shatin, using funds generated by the family business and related businesses and, it appears, funds from a mortgage loan secured on the property.  Madam Lam, Wai Hang’s family and Wai Ling moved in to live there.  Madam To alleged that at that time Wai Hang did not allow Wai Fong to live there, as a result of which she bore a grudge against Wai Hang, but I prefer the evidence of Wai Fong on this point that her family did not move in simply because it would be too crowded for all of them to live in the Keng Hau Road property.

16.In July 1987, annual returns for the previous years (1981 to 1986) were filed for Essence.  In each of those annual returns, the shareholders were stated to be “Lui Hung (Deceased)” and Wai Fong.  The same applied to the annual return for 1987 which was filed in December 1988.

17.In the annual return for 1989 signed by Wai Foon, however, Wai Hang and Wai Fong were stated to be the holder of one share each. In the “remarks” column opposite Wai Hang’s name, the word “Inherited” appeared.  (This remark was removed in the annual return from 1996 onwards which simply stated Wai Hang to be a shareholder.)  In these proceedings Madam To contended that it was at around 1989 that Wai Hang became the beneficial holder and owner of that one share in Essence. 

18.The register of members of Essence could not be found as a result of which it is not known for certain whether Wai Hang’s name was entered into the register as a member and, if so, when that happened.  Nor could any share certificate be found in the possession of anyone.

19.In August 1991, Essence acquired an industrial property, namely, Factory Unit B on G/F including yard and store room, Chiu Tat Factory Building, 708-710 Prince Edward Road East, 108-110 King Fuk Street, Kowloon, with funds generated from the family business and related businesses and with the help of a mortgage loan.

20.Starting from 1989, the Lui family had discussed plans to emigrate to Canada.  In 1993, Wai Hang and his own family emigrated to Canada.  They lived in a house in Ontario which was purchased with funds from the family business and put in Wai Hang’s and Madam To’s name.  Between 1993 and 1996 Wai Hang lived in Canada and did not participate in the family business.  Between 1993 and around 2005, Wai Hang’s own family received financial support of a few thousand US dollars per month via Wai Shing.

21.In 1996, Wai Hang returned to Hong Kong by himself, while Madam To and their children remained in Canada.

22.In May 1997, Essence acquired a further property, namely, Shop C on G/F, Kar Tseuk Building, 185 Prince Edward Road West, Kowloon, with funds generated from the family business and related businesses and with the help of a mortgage loan.

23.In around 1999, the curtain business ceased to be registered as a sole proprietorship, and became instead operated by a company.

24.In 2006, after her younger child had graduated from university in Canada, Madam To sold their Ontario house and returned to live in Hong Kong.  She worked in the family business again.

25.While the relationship between Wai Hang and his mother had all along been good, there was some discussion in the evidence about his relationship with his siblings.  Again here it seems to me both sides were exaggerating their case.  I do not think the relationship between the siblings was so bad that they were not on speaking terms, as Madam To alleged.  But it is clear that Wai Fong and other siblings considered Wai Hang was drinking too much and perhaps working too little, and they criticised him, which was probably a cause of friction.  Nevertheless it seems that the relationship between the two sides was not all that bad even by 2012.  For example, when Madam To’s son-in-law relocated to Hong Kong in April 2012, it was Wai Kuen and his wife who went to the airport to pick him up.  Wai Hang would also have dinner frequently with Madam Lam and his siblings.

26.On 22 July 2012, Wai Hang died.

27.On 6 August 2012, a return of allotment relating to Essence was filed in the Companies Registry, stating that an allotment of shares took place on 17 July 2012 whereby Wai Foon and Wai Kuen were each allotted one share in Essence (“the Allotment”). 

28.In November 2012 Madam To was granted letters of administration of Wai Hang’s estate.  Madam To has since complained about the Allotment as being prejudicial to the interests of Wai Hang’s estate.  She offered to sell one share in Essence to the respondents for a consideration being 50% of the net value of the company. 

The proceedings and the issues

29.On 21 March 2013, Madam To, as sole administratrix of Wai Hang’s estate, presented the petition herein (HCMP 557/2013) against the respondents pursuant to s 168A of the previous Companies Ordinance (Cap 32) claiming an order for the 1st to 3rd respondents to purchase Wai Hang’s share in Essence to be valued on the basis that the Allotment had not been made or, in other words, on the basis that Wai Hang held 50% of the entire issued share capital.  It was alleged that the Allotment was effected without the consent or knowledge of Wai Hang, that it was invalid because there was no prior approval given by the company in general meeting, and that it was done for the purpose of diluting Wai Hang’s interest in Essence from 50% to 25%. 

30.In May 2013, the respondents filed their points of defence, in which it was alleged that Mr Lui Snr’s one share in Essence passed to Wai Hang as personal representative of Mr Lui Snr’s estate and was held by him for the benefit of Madam Lam and all the siblings as beneficiaries of the estate in accordance with the Intestates’ Estates Ordinance (Cap 73).  It was contended that Madam To therefore had no standing to present the petition.  There is no dispute that if Wai Hang had held the share as a personal representative, then Madam To had no standing to complain of unfair prejudice: Re Kam Fai Electroplating Factory Ltd (HCCW 534/2000; 8 December 2003), §16; Re Chor Lau Heung Restaurant Co Ltd (HCCW 63/1999; 31 March 2000).

31.Madam To accepted that the one share in Essence originally belonged to Mr Lui Snr and formed part of his intestate estate upon his death.  Her case is that there was an agreement between all family members in 1989 that there was to be a distribution of Mr Lui Snr’s estate and that the one share in Essence was to be inherited beneficially by Wai Hang.  It was common ground at trial that it was incumbent upon Madam To to prove that there was such an agreement on the part of all beneficiaries of Mr Lui Snr’s estate failing which the petition would fail.

32.As regards the Allotment, the respondents contended that there was in fact a lunch meeting on 11 April 2012 at a restaurant attended by Wai Hang, Wai Fong and Wai Kuen at which Wai Hang agreed that Wai Foon and Wai Kuen should each be allotted one share in Essence, and that it was known and agreed on all hands that the two new shares were not to be owned by Wai Foon and Wai Kuen beneficially but were to be held by them for Mr Lui Snr’s estate.

33.On the respondents’ case, prior to the Allotment, Essence was beneficially owned by Wai Fong and Mr Lui Snr’s estate equally.  The effect of the Allotment was to increase the interest of Mr Lui Snr’s estate in Essence to 75% (3 out of 4 shares) and reduce Wai Fong’s interest to 25% (1 out of 4 shares).  Mr Kay Chan who appeared for Madam To accepted that, in that scenario, the Allotment could not be said to be prejudicial to Wai Hang because his interest in Essence, indirectly as a beneficiary of Mr Lui Snr’s estate, would be enlarged by the Allotment.

34.If, however, Wai Hang had been the beneficial owner of the one share in and thus 50% of Essence, then it would be crucial to determine whether or not he consented to the Allotment, because in that scenario its effect was to reduce Wai Fong’s and Wai Hang’s interest in the company to 25% each and to make Mr Lui Snr’s estate an additional, 50% beneficial shareholder.  Ms Teresa Wu, who with Ms Jacqueline Law appeared for the respondents, did not dispute that such a dilution of Wai Hang’s interest, if done without his consent, would be unfairly prejudicial to his interests as a member of the company.

35.On 10 October 2013, Madam Lam, in her capacity as sole surviving administratrix of the estate of Mr Lui Snr, brought the action herein (HCA 1930/2013) against Madam To in her capacity as the administratrix of Wai Hang, claiming a declaration that the estate of Wai Hang held the one share in Essence on trust for the estate of Mr Lui Snr. 

36.There was an additional claim in the action against the estate of Wai Hang for an account of the proceeds of the sale of a property in Cheung Sha Wan belonging to Mr Lui Snr in the sum of $730,000. Given that the property was sold in 1989, there appears to have been inordinate delay in bringing the claim.  Moreover, Madam Lam gave evidence during the trial that the proceeds of sale were ploughed back into the family business for the purpose of buying goods.  As an inevitable result, the claim for account was expressly abandoned by Ms Wu on behalf of Madam Lam in her closing submissions.

37.It follows that the action in substance raises no additional issue to those arising in the petition.  The two central factual issues in these proceedings are:

(1) whether there was agreement from all the beneficiaries of Mr Lui Snr’s estate, by 1989, that Wai Hang was beneficially entitled to the one share in Essence; and

(2) whether there was a meeting on 11 April 2012 at which Wai Hang consented to the Allotment.

Issue 1 – Whether all the beneficiaries agreed Wai Hang was beneficially entitled to the one share in Essence

38.Madam To accepted that the one share in Essence originally belonged to Mr Lui Snr and, upon his death, formed part of his estate. Her pleaded case was that Wai Hang had “inherited” the share after the death of Mr Lui Snr.  There is no suggestion of any inter vivos gift, or that Wai Hang became beneficially entitled to the share under any resulting or constructive trust, or that there was any form of estoppel that prevented Madam Lam or the siblings from disputing Wai Hang’s entitlement to the share.

39.Precisely how Wai Hang “inherited” the share was not clear from Madam To’s petition or her points of reply in the petition proceedings. There is no dispute that Mr Lui Snr died intestate, as a result of which his assets stood charged with the payment of a statutory legacy to his widow and were, subject thereto, held on a statutory trust, as to one half, for his widow absolutely and, as to the other half, for the children in equal shares: s 4(3) of the Intestates’ Estates Ordinance.  The one share in Essence, upon an intestacy, first vested in the Official Administrator (see s 10 of the Probate and Administration Ordinance (Cap 10)) and, upon the grant of letters of administration, vested in the administrators (ie Wai Hang and Madam Lam) jointly.  The share vested in and was transmitted to them by operation of law, but that did not automatically make them members of the company: Yan Kwok Kin Julian v Yan Kwok Kee Gay [1997] HKLRD 1199, 1201; Palmer’s Company Law (2014) at §§6.475-6.476.  To become a member, a transmittee has to request to be registered as such.  If a transmittee so requests and is registered, he is entitled to be registered as the owner and not as holding in a representative capacity; no notice of trust is entered on the register: In re T H Saunders & Co Ltd [1908] 1 Ch 415; s. 634 of the Companies Ordinance (Cap. 622)[1].  Even if Wai Hang registered himself as a member in respect of that share, he would simply hold “in auter droit” and not beneficially, unless and until there is a distribution of the share to him beneficially: Williams, Mortimer & Sunnucks, Executors, Administrators and Probate (20^th ed), §41-09.

40.In her defence in the action, Madam To pleaded that it was “the joint understanding and agreement within the family that the 1 Share would be inherited by Wai Hang alone and indeed Wai Hang did inherited [sic] the 1 Share” and that “[d]istribution was effected when Wai Hang inherited the 1 Share from the Deceased’s Estate”.  In the further and better particulars of her defence and counterclaim in the action, supplied by letter in April 2014, Madam To stated that the “joint understanding and agreement” had been reached orally since the founding of the company, and included the parents, and that “all siblings were informed and agreed when they came of age”.

41.In her evidence Madam To referred to an agreement of all family members in around 1989 whereby it was agreed that there would be distribution of Mr Lui Snr’s estate and that the one share in Essence would be given to Wai Hang by way of such distribution.

42.In his closing submissions Mr Chan urged the court to find, inter alia, that (i) there was an agreement in 1981 between the parents, Wai Hang and Wai Fong that the one share would be inherited by Wai Hang; and (ii) there was an agreement within the family that there would be distribution of Mr Lui Snr’s estate in 1989, in that the Cheung Sha Wan property would be sold with the proceeds deployed for the family business and the one share in Essence would be given to and inherited by Wai Hang.

43.There is no direct evidence of the alleged agreements.  Madam To did not claim to have witnessed any discussion, let alone oral agreement, to the effect alleged.  In her witness statement in the action she said Wai Hang had told her on various occasions that one share in Essence was inherited by him in recognition of his being the eldest son and his role in starting up the curtain business.  She said that “the act of distribution agreed upon by all family members at the time was that the one share … was to be transferred to [Wai Hang] and such registration was to be carried out in the Companies Registry by Wai Hang in around 1988-1989”.

44.In cross-examination she said that Wai Hang had told her that the family had agreed that the one share would be transferred to him and belong to him, but she paid little attention to what he said at the time and did not know when the agreement was reached, how it was reached and whether the family members agreed together or separately.  Later on she said the agreement should have been made in around 1989 although she was not sure because she did not pay attention when Wai Hang talked to her about these things.

45.I doubt the reliability of Madam To’s evidence on this aspect of the case.  Madam To issued her petition in March 2013 alleging Wai Hang inherited the share.  Despite various requests for particulars, she did not mention any family agreement either in the correspondence in 2013, or in her points of reply filed in June 2013, or in her witness statement in the petition proceedings dated September 2013.  The first mention of a “joint understanding and agreement” within the family was made in February 2014, when she filed her defence to Madam Lam’s action, the particulars of which were only provided in April 2014.  Moreover, it is not clear whether Madam To actually agreed with those particulars stated in her solicitors’ letter, as her oral evidence on the accuracy of those particulars was confusing.  Madam To also accepted in her evidence that she did not know that Wai Hang was one of the personal representatives of Mr Lui Snr’s estate.  That could affect her understanding of the significance of the registration of one share in Wai Hang’s name.

46.Mr Chan placed great score on the annual return for the year 1989 which, for the first time, stated Wai Hang to be a shareholder with the word “inherited” opposite his name.  In an appropriate case, such a record may be prima facie evidence of what is stated in it: R v Halpin [1975] 1 QB 907.  Taken at its highest, however, the return is no more than written evidence of the view of the person who prepared it. The Registrar of Companies is not responsible for verifying the truth of any statement in it: see s 348A of the previous Companies Ordinance (Cap 32)[2].

47.In the present case, the weight that can be put on the annual return is, in my view, limited.  First, the word “inherited” is not wholly clear and unequivocal.  Madam To contended that there was a distribution of Mr Lui Snr’s estate with the result that Wai Hang was to be given the share in full.  But the notion that there was some family agreement for distribution of the father’s estate in the 1980s is contradicted by the evidence of Madam Lam and some of the other siblings, who was adamant that there was no such agreement or distribution.  Their evidence appears to be more consistent with the fact that Mr Lui Snr’s body was still deposited in a “yee chong” until 2012.  The sale of the Cheung Sha Wan property in 1989 was, in my view, not indicative of a prior resolution to distribute the father’s estate, for the proceeds of sale were recycled in the family business rather than distributed to the beneficiaries.  Further, the one share in Essence was of little value when Mr Lui Snr died.  It could only become valuable from 1987 onwards when properties were acquired using Essence.  Even in 1989 it would appear that the share only had value insofar as there was equity left in the Keng Hau Road property net of the mortgage loan.  It would not be natural for the family members to think of the value in the properties as part of the estate of Mr Lui Snr.  Moreover, there is no evidence that the share in Luxhome Ltd held by Mr Lui Snr was distributed.  In fact, the evidence of Madam To as well as Sally Lui, the daughter of Wai Hang and Madam To, was that, after Wai Hang died, Madam Lam and Wai Chung both insisted that the Lui family as a whole should bear the funeral and burial cost because the family wealth had not yet been divided (“未分家”).

48.Secondly, the 1989 return was, on Foon’s evidence which I accept on this point, filled in by Wai Hang.  Even if the entry of Wai Hang’s name as a member and the remark “inherited” were intended to mean that Wai Hang was beneficially entitled to the share, that only represented the view of Wai Hang.  It is not probative of an agreement involving the mother and all the siblings as alleged, as there is no evidence that Wai Hang understood that, for him to become beneficially entitled to the share, he needed the unanimous informed consent of all beneficiaries in the estate.  I also accept the evidence of Wai Fong and Wai Foon that while they were directors of Essence, they did not pay much attention to the wording of the annual returns.

49.Thirdly, it seems to me unlikely that if a distribution had been agreed by 1989 as alleged, the siblings running the family business (i.e. Wai Fong, Wai Chung and Wai Foon, and later Wai Kuen) would still have decided to put the properties purchased with funds from the family business, in which Wai Hang played a diminishing role, in the name of Essence in 1991 and 1997.

50.In support of Madam To’s case, Mr Chan also relied on the evidence of Sally Lui.  In her statement in the action she said Wai Hang had mentioned to her on many occasions that he “exclusively inherited” the share in Essence.  That could be consistent with Wai Hang taking the view on his own that he had some entitlement to the share.  Moreover, in her statement in the petition, Sally Lui said she and her mother had a conversation with Wai Hang on 3 February 2012 about “his situation in the Company” and insisted that “the dealings between [Wai Hang] and his siblings must be resolved as soon as possible”.  This suggests that the situation was far from clear.  In her oral evidence Sally Lui added that she had heard many times from Wai Hang about his “inheritance” of the share by “family agreement”.  While I accept that Wai Hang had previously mentioned to Sally Lui that he was a registered shareholder of Essence, I find her evidence about the family agreement self-serving and unreliable. 

51.In opposition to Madam To’s claim, Madam Lam, Wai Fong, Wai Foon and Wai Kuen, as well as Wai Ling and Wai Shing gave evidence against the alleged agreements.  In other words, the mother and five of the six siblings of Wai Hang testified against the existence of the alleged family agreement involving them.  The only sibling whose account of events the court has not heard is Wai Chung.

52.Madam Lam gave evidence in a fair and spontaneous manner.  Her evidence was balanced and not contrived, and accorded with common sense.  She was ready to give answers even when they did not suit her case. For example, she accepted that Madam To was, after her marriage with Wai Hang, part of their family and was involved in the business.  Madam Lam also revealed, of her own motion, that the proceeds of the sale of the Cheung Sha Wan property were used to purchase goods for the family business, even though that answer spelt the end of her claim against Wai Hang’s estate for an account of those proceeds. When it was suggested to her that Wai Hang held the share in Essence for himself, she disagreed.  She said she did not know whether the share had been transferred to Wai Hang, but that if it had been transferred, it was something entrusted to him for everyone in the family.

53.It was not directly put to Madam Lam that there was, as pleaded, a specific agreement among the parents, Wai Hang and Wai Fong, prior to the death of Mr Lui Snr, that Wai Hang would inherit the one share in Essence.  Nor was it suggested to her that after Mr Lui Snr’s death, she gave consent for the share to be given to Wai Hang instead of being realised and distributed in accordance with the statutory provisions of the Intestates’ Estates Ordinance.  It was not put to Madam Lam that she in any way agreed to give up her statutory legacy and the half share in the residuary estate.

54.There is no suggestion that Mr Lui Snr was very old or ill in around 1981.  As far as I can tell no one expected him to die in 1981 or shortly thereafter.  Furthermore, by the time he died, no step had been taken to activate Essence or inject any asset into it.  It seems to me inherently unlikely that there was an express agreement in 1981 among the parents, Wai Hang and Wai Fong that the father’s share in Essence would eventually be inherited by Wai Hang.

55.As to an alleged family agreement entered into after the father’s death that the share in Essence would beneficially devolve to Wai Hang, acceded to gradually when the siblings reached majority, it was denied by all five siblings who gave evidence.  In particular, two of the siblings who have been living abroad and not been involved in the running of the family business, namely, Wai Ling and Wai Shing, both denied that there was any such agreement as alleged by Madam To. 

56.Wai Ling said she did not even know Essence existed when the father died.  She did not know letters of administration of the father’s estate were granted in 1984, or that Essence was used as the company to purchase the property at Keng Hau Road in 1987.  She did not know that the proceeds of the sale of the Cheung Sha Wan property were used to purchase goods for the family business.  She denied that there was any agreement within the family or involving herself that the share in Essence was to be transferred in full to Wai Hang.  She had heard about the family using companies to purchase properties and hold properties but she knew very little about the actual arrangements.  She got married and moved to Malaysia in around 1990 or 1991 and thereafter only came back to Hong Kong from time to time, primarily to see her mother.  After 1999 she had children and returned to Hong Kong less frequently.

57.Wai Shing went to the USA in 1985 or 1986 for his studies and has lived there ever since, returning to Hong Kong only briefly from time to time.  He was the family member who sent money to support Wai Hang’s family in Canada between around 1995 and 2005.  His evidence was that until recently he did not know the company (Essence) existed, did not know what assets or liabilities that company had, and did not know his father had one share in that company.

58.The picture that emerged from the evidence of the mother and the siblings in this respect, which I accept, is that at the time none of them paid much attention to how the shares were held in the companies used by the family, still less to what the annual returns stated to be the shareholders.  By late 1980s, Madam Lam was not involved in the family business, her role being to take care of the family especially the grandchildren.  Nor did the children trouble her with business matters.  Wai Shing and Wai Kuen, in their early twenties at the time, were both studying abroad and not involved in the family business or property transactions.

59.Mr Chan suggested that the steps of appointing directors for Essence in 1987 and using it to purchase the Keng Hau Road property were taken with the agreement of all family members.  I think that is an unrealistic assumption.  It is unlikely that the agreement of each family member would have been specifically sought about what company should be used as the purchaser of the family home for Madam Lam and who should be directors of that company.

60.Mr Chan also suggested that the sale of the Cheung Sha Wan property and the use of the proceeds in the family business were agreed to by all family members.  I do not think this family worked in that way. There is no evidence they were advised by lawyers at the time and would pay attention to the legal difference between the father’s estate and the family business.  There is a ring of truth in Wai Fong’s testimony that the proceeds received were simply put into the bank accounts and used in the ordinary course of business, without any family resolution of any sort and without the need for anyone to sign anything.

61.As stated above, I do not think that there was an agreement or decision to distribute Mr Lui Snr’s estate or the family assets in late 1980s.  While the Cheung Sha Wan property was sold in 1989, the proceeds were not distributed to family members.  No evidence was adduced about any distribution of the share in Luxhome Ltd held by Mr Lui Snr.  On Madam To’s own case, there had not yet been a proper division and distribution of the family assets.  While the annual returns of Essence from 1989 onwards referred to Wai Hang as the shareholder, I am unable to infer from this a family arrangement agreed to by all the beneficiaries of Mr Lui Snr’s estate that Wai Hang would be beneficially entitled to the one share (or 50%) of Essence.  I do not think that there was a common understanding that Wai Hang was, in effect, to have half of the value of the properties acquired by the family using Essence.

62.While there are inaccuracies and inconsistencies in their recollections of the precise sequence of events on 3 February 2012, I accept the broad thrust of the evidence of Madam To, Sally Lui and Adam Chow (Sally Lui’s husband) to the effect that on that day, Wai Hang and Adam Chow made an online search in the Companies Registry and ascertained that Wai Hang was still shown on record as the holder of one out of two shares in Essence. Wai Hang was aware that he was the registered holder of one share in Essence. In my view Madam To probably considered that Wai Hang had some special entitlement in the company, perhaps more than some of his siblings, given that he was the eldest son and he started the curtain business.  But I do not think this supported the case that everyone in the family had agreed that Wai Hang should have one share or 50% of Essence.  Sally Lui said that on that day, she and Madam To had a conversation with Wai Hang regarding his situation in the company.  They insisted that he resolve his dealings with his siblings.  Madam To also said they told Wai Hang to resolve any issues with his siblings as soon as possible.  It was in this context that Wai Hang, with the help of Adam Chow, made an online check of his status as a shareholder.  To my mind the evidence suggests that there were questions to be resolved, rather than that Wai Hang was by agreement among all the beneficiaries indisputably the beneficial owner of 50% of Essence.  Further it would appear that it was Madam To who was anxious that the questions be resolved, as she insisted on Wai Hang doing so. I do not think it possible that Adam Chow could recollect exactly what Wai Hang said on that day; he was, as he said, “only casually interested”.  His evidence in his statement that Wai Hang said the share had been passed to him with the family’s agreement seems to me more an ex post facto (perhaps subconscious) rationalisation of what Chow considered ought to be the case than a verbatim record of what transpired.  In any event little weight can be placed on it as evidence that every beneficiary in the family had agreed.  In his oral evidence Chow accepted that Wai Hang had not specifically said the share belonged to him, but the impression he had gained was that Wai Hang regarded it as his.  He recalled Madam To encouraged Wai Hang to “settle his affairs” and to talk to his siblings so that there would be no “misunderstanding” about how the share would be handled.

63.In this connection Lee Kam Ming’s evidence added little.  He was a friend of Wai Hang’s and said in his statement that Wai Hang told him about checking on the computer his share in a curtain company.  In his oral evidence however he said Wai Hang mentioned checking whether certain landed properties had been re-mortgaged and did not talk about any share in a company.

64.Mr Chan also submitted that if the court should find against the respondents on the factual issue whether Wai Hang consented to the Allotment, then it could be inferred that they had a motive to dilute Wai Hang’s shareholding in the company.  As will be seen below I do find against the alleged meeting in which Wai Hang is said to have consented to the Allotment.  However, I am unable to draw therefrom the inference that the respondents knew and acknowledged that Wai Hang held one share in Essence beneficially.  It would be equally consistent with, for example, there being questions or disputes between the parties regarding the precise effect and significance of Wai Hang having been registered as a shareholder over the years.

65.There is a hint in the evidence and submissions for Madam To that as the child who started and contributed to the curtain business and as the eldest son of the family, Wai Hang should have a sizeable share of the family wealth, and should be have died with so little in his estate.  In my opinion there is simply no sufficient factual basis for the court to begin to embark upon an inquiry along those lines or to assess the relative wealth of the siblings or their contribution to the family.  The court could not seek to determine the case on the basis of how much Wai Hang ought to have in the company, but has to do so by reference to legal rules and principles.

66.The position therefore seems to me to be as follows.  There was no agreement in 1981 as pleaded between Wai Hang and his parents that he would inherit the share registered in Mr Lui Snr’s name.  After Mr Lui Snr died, Wai Hang became one of the administrators of his estate.  It is likely that Wai Hang became registered as a member of Essence in late 1980s.  But there was no informed consent from all beneficiaries of Mr Lui Snr’s estate that Wai Hang was to become the full beneficial owner of one share of Essence upon such registration or otherwise.  Consequently Wai Hang was registered as a transmittee of the shares upon the death of Mr Lui Snr and held that share as an administrator of the estate.  When Wai Hang died in turn in 2012, the interest in Mr Lui Snr’s estate passed to the sole surviving administratrix, namely, Madam Lam.  The share did not pass beneficially to Wai Hang’s estate.

67.It follows that the petition fails as a consequence.

Issue 2 – Whether there was a meeting on 11 April 2012 at which Wai Hang consented to the Allotment

68.It is not strictly necessary to determine whether the alleged meeting in April 2012 occurred.  However, in case I am wrong on the first question and since this is a major factual issue on which much evidence has been given, I shall deal with it as follows.

69.The respondents’ case is that in around end of 2011 and early 2012, Wai Hang’s health had significantly deteriorated and he himself expressed the wish to sort out the outstanding matters concerning Mr Lui Snr including his proper burial and the one share in Essence.  Wai Hang proposed issuing additional shares to other siblings so that they could assist in holding the shares of Essence if his own health further deteriorated.  Accordingly, a meeting was arranged on 11 April 2012 during lunch time at Cheung Fat Seafood Restaurant in Yue Xiu Plaza, Wong Tai Sin.  Wai Hang, Wai Fong and Wai Kuen were present at the meeting.  During the meeting, Wai Hang said he would like two more shares to be allotted to Wai Foon and Wai Kuen, because he hoped eventually to distribute the one share he held to the beneficiaries of Mr Lui Snr’s estate but did not know how it should be done properly.  Wai Foon and Wai Kuen were chosen as the allottees because among the other siblings, they were the only ones who were stationed in Hong Kong.  Wai Fong said that she agreed to the Allotment because Wai Foon and Wai Kuen would be holding on trust for Mr Lui Snr’s estate and her own interest in Essence would not be affected.

70.The respondents’ case is that, after the meeting, Wai Kuen was instructed to implement what was agreed.  Papers setting out the minutes and resolution were prepared which Wai Fong and Wai Hang signed.  Subsequently a Form SC1 was prepared and filed in the Companies Registry in August 2012.

71.It can be seen that if I had found that Wai Hang was beneficially entitled to the share in Essence, that would be inconsistent with factual premise of the respondents’ version of the meeting. 

72.In my view, I ought to view with some suspicion this version of events which only emerged after the death of Wai Hang and was being relied upon as an agreement binding on his estate; see by analogy Yung Shu Wu v Vivienne Sung Wu (2011) 14 HKCFAR 39 at §§73, 76.  In any event I have considerable doubt about this part of the respondents’ case.

73.First, the minutes and resolution said to have been signed by Wai Hang were not produced.  The respondents explained that the documents could not be found and were probably lost in a flood in Wai Kuen’s office on 22 May 2013 caused by a typhoon.  This explanation is not satisfactory. Madam To complained about the Allotment by a formal solicitors’ letter dated 6 March 2013.  The petition was issued on 21 March 2013, complaining specifically that the Allotment was done without Wai Hang’s knowledge or consent and without a general meeting of Essence.  The respondents knew at once that the central issue was the propriety of the Allotment.  There is no credible reason why, if the signed minutes existed, they would not have preserved it immediately upon receipt of Madam To’s complaint.  They did not need a solicitor to tell them that the document signed by Wai Hang would probably be the single most important document in the case.  The Lui’s is not a family who often signed agreements and documents among themselves.  If the signed minutes and resolution had indeed been produced, it would have been because the respondents considered it vital to have a written record of the alleged meeting and agreement.  On that footing, the idea that such a crucial document would have been left lying around in Wai Kuen’s office for over a year after it was signed, and over two months after Madam To complained through solicitors, only to be destroyed in a flood in May 2013, is hard to accept.  Likewise, if the document in fact existed, the notion that the respondents did not start looking for it until after the flood on 22 May 2013 seems to me to be incredible.

74.Moreover, when the respondents first replied to Madam To’s request for the minutes and resolution, their solicitors’ letter dated 18 September 2013 stated (on Wai Kuen’s instructions) that the company kit had always been kept at the registered address of Essence, ie G/F, 15 Keng Hau Road and that they were trying to locate it.  This is inconsistent with the respondents’ subsequent assertion that the minutes and resolution were kept in Wai Kuen’s office in Chiu Tat Factory Building.

75.On 11 December 2013, Wai Kuen stated in an affirmation made for discovery of documents that the minutes and resolution had been in the respondents’ possession, custody or power, that they could not locate it but were still trying to do so, and that they parted with it in mid to end April 2012 after it was signed by Wai Hang and Wai Fong.  Strangely there was no mention of any probability that the document had been destroyed in the flood.

76.Further, as a matter of fact, no document was filed in the Companies Registry about the Allotment until 6 August 2012, after Wai Hang had died on 22 July.  The Form SC1 filed on 6 August stated that the two shares were allotted on 17 July 2012.  If in fact the allotment was decided upon on 11 April 2012, it is not clear why the form should state the date of 17 July 2012.  Wai Kuen and Wai Fong explained in their oral evidence that 17 July was the date when the subject of the Allotment was brought up in a family gathering and Wai Kuen was reminded to follow up with the filing requirements. It is strange that Wai Kuen had not attended to the matter even by July 2012 if the document had been signed in April 2012.  Moreover, nothing about that conversation leading to the date of 17 July 2012 being adopted as the date of the Allotment was mentioned in any of the respondents’ witness statements.

77.There is also something illogical in what the respondents alleged.  If Wai Hang was concerned about his deteriorating health and thought that he would not be able properly to handle the share he held as one of the administrators of Mr Lui Snr’s estate, he could have taken steps to get someone else appointed in his place as administrator, or even simply transferred the one share to either Wai Foon or Wai Kuen or to them jointly to be held for the estate.  There is no satisfactory explanation why Wai Hang would think that issuing additional shares would solve the problem.

78.Wai Fong explained that she agreed to the Allotment because her interest in Essence would not be affected.  I find that difficult to understand.  As Ms Wu accepted at the beginning of the trial, on the respondents’ case, the Allotment would have the effect of increasing the interest of Mr Lui Snr’s estate in Essence from 50% to 75% and reducing Wai Fong’s interest from 50% to 25%.  Wai Fong’s interest clearly would be affected.  I find it hard to believe Wai Fong, a seasoned businesswoman, could be mistaken about something like that.

79.Having taken all the evidence into account, I find that Wai Hang did not have a meeting with Wai Fong and Wai Kuen on 11 April 2012 at which he consented to the Allotment as alleged.

Conclusion

80.For the foregoing reasons the petition is dismissed because Madam To lacks locus and also because the Allotment did not unfairly prejudice the interests of Wai Hang’s estate.

81.Madam Lam’s claim in the action for the declaration succeeds.  There will be an order that the share in Essence be vested in her as sole surviving administratrix of Mr Lui Snr’s estate and be registered in her name.  The claim for an account of the proceeds of sale of the Cheung Sha Wan property is dismissed.

82.Bearing in mind that the respondents have failed on the issue of the Allotment which formed a substantial part of the dispute, and Madam Lam failed on the claim relating to the Cheung Sha Wan property and her claim for declaration did not raise any real separate issues, there will be a costs order nisi that:

(1)     Madam To do pay the respondents 30% of their costs of the petition.

(2)     There be no order as to the costs of the action.

Mr Kay K W Chan, instructed by S.W. Tai & Co, for the petitioner in HCMP 557/2013 and the defendant in HCA 1930/2013

Ms Teresa Wu and Ms Jacqueline Law, instructed by Yeung & Chan, for the 1^st to 4^th respondents in HCMP 557/2013 and the plaintiff in HCA 1930/2013